october  2011
volume 3  issue 5
India’s New Consolidated FDI Policy
A new consolidated FDI Policy has been issued by the Department of Industrial Policy & Promotion, effective from 1st October 2011 till 31st March 2012. This is in in supersession of all the earlier Press Notes/Press Releases/Clarifications/ Circulars, which were in force as on September 30, 2011.

The noteworthy changes introduced in the new consolidated FDI Policy are as below:

  1. IN-BUILT OPTIONS AND SUPPORTED BY OPTIONS:

    As per the new FDI Policy the following instruments with no in-built options of any type, would qualify as eligible instruments for FDI:
    1. Equity Shares,
    2. Fully, compulsorily and mandatorily convertible debentures and
    3. Fully, compulsorily and mandatorily convertible preference shares,

      Equity instruments issued/transferred to non-residents, having in-built options or supported by options sold by third parties, would lose their equity character and such instruments would have to comply with the extant ECB guidelines.

  2. CAPITALIZATION OF IMPORTED CAPITAL GOODS/MACHINERY AND PRE-OPERATIVE/PRE-INCORPORATION EXPENSES:
    • The conversion of imported capital goods/machinery and pre-operative/pre-incorporation expenses to equity instruments, must be made within a period of 180 days of the date of shipment of capital goods/machinery or retention of advance against equity.
    • Payments made through third parties would not be allowed
    • Payments for pre-operative/incorporation expenses can now be made directly by the foreign investor to the company or through a bank account, opened by the foreign investor, as provided under the FEMA regulations.

  3. INTRODUCTION OF PROVISIONS ON 'PLEDGING OF SHARES' AND OPENING OF NON-INTEREST BEARING ESCROW ACCOUNTS:

    The policy has been amended to provide for pledge of shares of an Indian company which has raised external commercial borrowings, or that of its associate resident companies for the purpose of securing the ECB raised by the borrowing company, subject to conditions. The policy also now provides for opening and maintaining AD Category – I banks without the prior approval of RBI, non-interest bearing Escrow accounts in Indian Rupees in India, on behalf of non-residents, towards payment of share purchase consideration and/or for keeping securities to facilitate FDI transactions, subject to the terms and conditions specified by RBI.

  4. SECTORAL CLASSIFICATION FOR BETTER ORGANIZATION OF THE CIRCULAR:
    The sectoral section of the policy has been re-arranged, to provide for grouping of services as :
    • Financial services,
    • Other services and
    • Information services
      The Circular has also been re-organised, with a view to grouping of similar subjects under common chapters.

  5. AMENDMENTS IN CONSTRUCTION-DEVELOPMENT SECTOR:
    Development activities in the education sector and in respect of old-age homes has been Exempted from the following general conditions:
    • Minimum area
    • Built-up area requirement;
    • Minimum capitalization requirement; and
    • Lock-in period

  6. AMENDMENTS IN AGRICULTURAL SECTOR:
    FDI has been allowed up to 100% under the automatic route in apiculture under controlled conditions.

  7. AMENDMENTS IN INDUSTRIAL PARKS SECTOR:
    The definition of industrial parks broadened to include the 'basic and applied R&D on bio-technology pharmaceutical sciences/life sciences', 'as an industrial activity', with FDI up to 100%, under the automatic route.

  8. AMENDMENTS IN TERRESTRIAL BROADCASTING/ FM RADIO:
    The foreign investment limit for Terrestrial Broadcasting FM (FM Radio) has been increased to 26% from the earlier 20%.

  9. AMENDMENTS IN SINGLE BRAND RETAIL SECTOR:
    In addition to the earlier conditions for Single Brand Retail Sector, now the FDI Policy requires, the foreign investor should be the owner of the brand.
 

INSIDE THIS ISSUE
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